No compulsory insurance for environmental liability until 2009.

Environmental liability insurance will not be compulsory in Europe until at least 2009. The European Parliament has voted to delay the introduction of compulsory financial guarantees, including insurance.

The measures were proposed under the Environmental Liability Directive to ensure that polluters had the financial means to pay for damage caused.

It elected to hold off on the possibility of making insurance compulsory for five years after the Directive comes into force, in order to allow a free market for products to develop.

Provided the European Council of Ministers agrees to the changes, the Directive is expected to be enacted by April 2004.

In 2009, the Commission will report on the development of the market. If a market is not deemed to have been established, the Parliament will consider making financial guarantees compulsory.

Comité Européen des Assurances (CEA) environmental liability committee chairman Phil Bell said that while the CEA welcomed the five-year grace period, questions remained about the practicalities of making it compulsory to purchase products if they did not exist.

Bell said there were also questions about which country multinational organisations would buy financial products in, and whether products could be developed to protect companies with exposures across Europe.

He said each country would implement the Directive independently, meaning the regulations could differ between countries.

But Bell, who is also technical insurances manager at Royal & SunAlliance, said that there was an appetite within the insurance industry to develop environmental liability products. "We want to develop these products, but we're going to need help and support."

He called for a working party to be established comprising representatives of insurers, reinsurers, non-government organisations and national governments across Europe, to consider issues such as how to value natural resources, and assess expected claims frequency using historical data.